What happens if the peso is devalued?

[davonz]

"Correction: An earlier version of the chart and the table gave a discount price for a Big Mac in Argentina. This was corrected on July 28th."

Lucky i noticed that - NOT.. well spotted..

 

[AlexfromLA]

This is the most recent chart.

All this doom and gloom never pans out. They've been saying the same thing for the past 4 years. So far I haven't read any convincing argument in either direction in this thread. We will see.

 

[mini]

Lucky i noticed that - NOT.. well spotted..

Well, I was looking for the signs of photoshoping, thinking it was a big conspiracy. Sadly it was just a mistake! LOL.

 

[anatolie]

IMHO i would say the peso is over valued. Take a basket of everyday items from the supermarket. Convert the cost back to dollars, and then find out how much they cost in $ in the states or your home country. For me most items are 25% or more (much more) expensive. There is no reason for Arg to be more expensive then belgium or NZ or AU or US. If it was like china, booming economy, booming export sector then you would expect things to be more expensive. Or if the average wage was high. But i dont think ARG is any of these things.

I can talk about Australian supermarket prices, Coles and Woolies are way more expensive than Argentinian supermarkets. Same goes for clothes, shoes etc, Australia has become a very expensive place!

There are a lot of good value items in Tesco, Asda in UK due to their massive size, competition and use of dirt cheap labor in 3rd world countries and whatever other reasons, but overall cost of living is still twice as much in Europe than in Argentina.

 

[mini]

I can talk about Australian supermarket prices, Coles and Woolies are way more expensive than Argentinian supermarkets. Same goes for clothes, shoes etc, Australia has become a very expensive place!

There are a lot of good value items in Tesco, Asda in UK due to their massive size, competition and use of dirt cheap labor in 3rd world countries and whatever other reasons, but overall cost of living is still twice as much in Europe than in Argentina.

I wonder if it really is more expensive to live in Australian/Europe/UK/US when you earn the local currency as opposed to living in Argentina making Argentine pesos.

I think those who find Argentina cheap are the ones who make their money in another currency or bring it from outside.

 

[redrum]

Controversial issue. Many economists do in fact believe the dollar is overvalued due to long-term fundamentals, mainly, how can the US sustain an unprecedented deficit in the long-run?

In any event, the macro fundamentals of the US far exceed the fundamentals in Argentina, and to say the dollar is grossly overvalued is inaccurate.

Also, it needs to be clarified that the principal reason for the Argentine peso being undervalued stems from internal manipulation (price controls, distortionary taxes etc, policies the Kirchners have sought to maintain).

i would say i'm in the dollar being over valued camp. it survives because it has reserve currency status and because of our military strength - a trillion dollar a year foreign policy should buy you something after all.

The long term fundamentals, as you mentioned, are not good. The dollar will be the last fiat currency domino to fall as investors/countries jump from one sinking ship to what they believe is higher ground. That being said, one serious item to consider is what will happen to those nations that hold dollars as their reserves?

As pericles mentioned earlier, everyone should own at least some percentage of precious metals i.e. gold/silver as a hedge. There is an overwhelming lack of transparency as well as too much uncertainty and instability(war, fraud, pandemics) in today's world and markets to be overly leveraged in any one currency or even basket of currencies. When checking the value of gold exactly one year ago today, it is up about 25%. I can't think of many asset classes that are giving those types of returns today.

One inflation food tip - check Coto for when they offer discounts as high as 25% when purchasing with your credit/debit card and stock up. make sure you bring your dni or passport. http://www.coto.com.ar

 

[AlexfromLA]

Let's be honest. The dollar survives because of the Chinese.

 

[otto]

I thought I'd just add to this thread a little (seeing that you guys linked through to the original erroneous BigMac Index from my blog, IKN).

See above a five year chart for the US Dollar against a basket of South American currencies. It includes the Argentine Peso (ARS), the Colombian Pero (COP), the Chilean Peso (CLP), the Brazilian Real (BRL) and the Peruvian Nuevo Sol (PEN). The inference is clear and makes the title of this thread somewhat redundant; It's not a case of if the Peso is devalued, it's more that it's been in a constant devaluation for five years with a real acceleration in the last two.

There's a ton of things that could be said here, but I'll stick with just two. Firstly, the economic model used by Argentina is that of a weak currency to prop up exports. That's fine, but weak begets weak and as everyone in the world (which is something that extends far beyond CapFed) knows the policy, it's normal to see the ARS devalue against a currency that's been wweak in itself compared to the S.Am basket, i.e. the dollar. If you really want to see the deval, chart the ARS in BRl terms, like in this chart:

Secondly, inflation isn't necessarily a bad thing as long as you know how to handle it. In this respect South Americans have a big advantage over the average gringo feeling its effects for the first time. After all, you sitting in Argentina, the country that invented the accountancy techniques to explain company earnings in hyperinflation scenarios. The key to country survival in an inflationary scenario is to keep salaries at pace with prices. Now this sucks for anyone getting paid in dollars and spending them in BsAs, but hey....welcome to the world of the minority .

Right now, Argentina's macro isn't is bad shape. That one you can believe or not, but there's no collapse on the horizon for the moment....as long as China keeps buying those soybeans, anyway.

 

[Lucas]

Thanks Otto, and welcome.